The Elephants of Global Finance Need to Act on Fragile States

According to an African proverb, when elephants fight it is the grass that suffers. It is easy to forget that while the major geopolitical titans of the United States, China and Russia battle it out, that there are still around three dozen countries that economists call fragile.

This is not some official grouping like the G20 but countries that just share a number of failings. Although there is no definition, they tend to share six major problems: a security threat from non-state actors; a government that lacks legitimacy; an inability to carry out basic functions; lack of protection of investors; a vulnerable economy; and deep divisions within society.

Unsurprisingly the major international bodies such as the United Nations, International Monetary Fund and World Bank have been working for decades to work out to help these countries turn themselves around.

However as a devastating report from an independent commission made clear last week, they have failed. “After decades of aid, many of these countries are as poor as they ever were — some even poorer,” said the Commission of State Fragility, Growth and Development. “Some of the things that developed countries, non-governmental organisations and donors have done have “arguably” made matters worse.”

The fact that the commission was chaired by former prime minister David Cameron — who is perhaps guilty of making the UK more fragile with his botched EU referendum —should not detract from its message.

More than two decades after the West started the process of wiping off $99 billion of debts owed the development institutions, many are in much the same place as they were then. The list of 35 “fragile situations” maintained by the Bank includes long-term tragedies such as the Democratic Republic of Congo, Mozambique. Libera and Mali, which all qualified for debt relief. There are some names which the West clearly has its fingerprints all over: Afghanistan, Syria and Yemen are just three.

The failure is not for a lack of energy. The World Bank has a Fragility, Conflict and Violence Group. Yet the commission found it is seriously wanting, saying it lacked the seniority to formulate an economic strategy and had no power to sign off country strategies for fragile states.

The IMF is perhaps worse. Although it works in fragile states in three main ways — it lends money to governments, trains officials, and tracks and reports on government economic performance — this does not happen as part of a directed strategy.

There is an opportunity for these two elephantine organisations to take a real step towards better tackling these issues

In fact, the Fund seems to treat fragile states as normal countries, but just a little weaker. It uses the same methodology and intervention programmes for Mali as it would do for Greece, but maybe with less strict deadlines. Both are in a bad way debt-wise, but even the most fervent critics would not say Greece is a failed state.

One difficulty the IMF faces is that its staff are not permitted to visit fragile states, let alone be based there. There are good reasons for that — an IMF employee was murdered along with four UN staff in a suicide bomb attack on Afghanistan in 2014.

As a result, it is no surprise that ambitious staffers will shun fragile states as a positive career path option given you would not get to go to the countries and your work would be subsumed into the wider efforts to help countries overcome financial crises.

For one commission member, UK Department for International Development head economist Rachel Glennerster, the answer was simple. She said that during her time at the IMF there were leading economists from top universities such as MIT working on fragile states.

“It is not like that now because they are signalling they are not interested. People get the signal about what’s important by what the managing director cares about,” she said. “If she [Christine Lagarde] were to chair only the fragile states discussions, people would work on those countries.”

The IMF’s own independent watchdog, the Independent Evaluation Office, has called for profound changes in the Fund’s policies and practices.

There is an opportunity for these two elephantine organisations to take a real step towards better tackling these issues as their joint annual meetings in October. At its Spring meetings, the IMF’s main executive committee said it looked forward to seeing the implementation of the IMF’s response to its IEO report. The equivalent World Bank committee “supported” managers’ efforts to increase its presence on the ground.

Although the luxurious resort of Bali Nusa Dua might seem an odd place to have a discussion about fragile states, the terrorist bombings in Bali in 2002 and 2005 remain a grim reminder of the need to constantly focus on tackling the symptoms and causes of fragile states.

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